News Release

On July 13, 1999, Montenegro's President Milo Djukanovic announced the appointment of Steve H. Hanke as his advisor on economic issues. Hanke is an applied economist and professor at The Johns Hopkins University in Baltimore. He is an expert on currency boards and the economies in the Balkans. Hanke also serves as an advisor to President Petar Stoyanov in Bulgaria and served as the advisor to the Vice President of Yugoslavia in 1990 until June 1991.

President Djukanovic met with Hanke on July 13 in Podgorica, Montenegro to review Montenegro's proposals to alter its political arrangements with the Serb-dominated federal state of Yugoslavia. These proposals were delivered by a delegation from Montenegro to Belgrade on July 14, when talks of forming a loose confederation began.

Under the proposed new confederation, Montenegro would remain part of Yugoslavia. However, Montenegro would have autonomy in the economic sphere. In particular, Montenegro would have control over its own money and banking system and the laws that govern its economy.

This arrangement would be similar to that in China, where Hong Kong has its own money based on currency board rules and its own legal system. Like China, Montenegro's proposal is for "one country, two systems."

As a first step, Montenegro would declare the German mark legal tender and also establish a currency board that would issue a convertible Montenegrin dinar. The convertible dinar would be backed 100 percent by German mark reserves and freely trade at an absolutely fixed rate with the mark. This set up would be similar to that in Argentina's bi-monetary system in which the U.S. dollar legally circulates in parallel with the Argentine peso, a currency issued under currency board rules.

If talks between Montenegro and Serbia fail to produce a "one country, two systems" confederation, it is anticipated that Montenegro will hold an independence referendum. Hanke said that under either the loose confederation or independence scenario, Montenegro would have its own monetary arrangements in which the German mark and the convertible dinar issued by a currency board would circulate simultaneously and both would be legal tender in Montenegro.

Hanke stressed that this monetary setup was a necessary condition for a viable, stable economy in Montenegro, because since 1971, the Yugoslav dinar has been the world's most unreliable currency.

Professor Hanke can be reached for an interview at 410-516-7183 or by e-mail at: hanke@jhuvms.hcf.jhu.edu. He also writes a column for Forbes magazine, which can be found at: http://www.global.forbes.com/mind/newforbes/